Factbox: Main recommendations of NZ's CO2 scheme review

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(Reuters) - The New Zealand government released on Thursday the findings of a mandatory review of the country’s emissions trading scheme, the only national program outside Europe’s. The panel recommended the expansion of the scheme be slowed.

The New Zealand scheme covers energy producers, industry and transport, sectors that emit about half the country’s greenhouse gas emissions. Agriculture, which produces the other half, is excluded until 2015.

Under existing measures, polluters only have to surrender one permit for every two tonnes of emissions. They also have the option of paying a fixed NZ$25 per tonne of carbon pollution until January 2013 or buying from the market.

The main unit of trade is the New Zealand Unit, or NZU, which represents a tonne of greenhouse gas emissions.

Following are the main changes recommended by the review panel:

PRICING AND ALLOCATION

The price cap should be retained after 2012, but should increase by $5 per annum from 2013 to 2017, starting at $30 per NZU in 2013 and reaching $50 per NZU in 2017. The next review should consider whether a price cap is needed after 2017.

For the liquid fossil fuels, stationary energy and industrial process sectors, the one-for-two surrender obligation should scale up to a full surrender obligation progressively from 2013 to 2015, increasing to 67 per cent in 2013, 83 per cent in 2014 and 100 per cent in 2015.

The price cap should be available to all the new sectors entering the scheme after 2012, including the agriculture, synthetic greenhouse gases and waste sectors.

A price floor should not be introduced.

The current phase-out rate of 1.3 per cent per annum of the previous year’s allocation should be revised to an annual reduction of 1.3 percentage points.

The existing allocation thresholds of 90 per cent allocation for highly emissions-intensive activities and 60 per cent for moderately emission-intensive activities should be maintained.

AGRICULTURE

Still joins in 2015 but with a gradual phase-in. Participants should have a one-for-two surrender obligation in 2015 and 2016, a 67 per cent obligation in 2017, rising to 83 per cent in 2018, and full surrender obligation from 2019.

But the panel recommends the point of obligation for agriculture should be farmers rather than processors.

AUSTRALIA

The Australian government is aiming to launch emissions trading in 2015 and both countries have discussed linking carbon trading.

The panel said while it was desirable for the New Zealand and Australian schemes to work broadly in harmony, “we should not be bound by the features of any particular overseas scheme.”

INTERNATIONAL LINKS

The current scheme only allows NZUs created from the country’s large forestry sector to be sold to investors overseas.

The panel said the ban on NZU exports from non-forestry sectors should be removed when the price cap is removed, or sooner if the price cap is significantly above the international carbon price.

The panel also heard a number of concerns over the possible threat from cheap U.N. offsets from HFC-23 industrial gas projects flooding the market. From 2013, the European Union will ban the use of offsets from these projects, which earn large numbers of credits from destroying HFC-23, a powerful greenhouse gas.

The review urged the government to see if these offsets pose a significant risk to the scheme and whether a time limit should be imposed on their eligibility.